Suppose workers expectations of prices and productivity are accurate. For this economy, an increase in productivity will cause which of the following?
A) An increase in both the real wage and the natural rate of unemployment.
B) A decrease in both the real wage and the natural rate of unemployment.
C) An increase in the real wage and no change to the natural rate of unemployment.
D) An increase in the real wage and a decrease in the natural rate of unemployment.
E) A decrease in the real wage and an increase in the natural rate of unemployment.

Question

Quizplus · Accepted Answer

An increase in productivity means that workers can produce more goods and services for each hour of work. This typically leads to an increase in the real wage, as workers are more valuable to employers. However, it does not necessarily change the natural rate of unemployment, which is determined by factors such as the structure of the labor market and policies affecting labor, rather than by productivity directly.

Suppose Workers Expectations of Prices and Productivity Are Accurate